There has been a sharp fall in the number of Government-backed loans being taken out by small businesses calling into question the viability the whole offering to SMEs.

The British Business Bank’s latest figures show that just 482 Enterprise Finance Guarantee (EFG) loans were offered in the last quarter of 2015. Businesses borrowed £56.2 million through the scheme during the period.

Both the number of loans offered and the overall value are the lowest quarterly figures since the scheme launched in 2009. When it began more than 2,000 loans were being offered every quarter at combined values of more than £250 million.

The scheme enables firms to get loans if banks will not lend to them because they cannot offer any assets as security. The Government, through the British Business Bank, provides a partial guarantee to lenders.

Despite the dwindling take-up of its loans, the Chancellor said in last week’s Budget that the scheme would be extended until at least 2018.

Alex Littner, managing director at alternative finance company Boost Capital, said: ‘This fall is down to poor communication in how this works. The peak seems to have been when it first came into existence. Since then it has been diminishing year on year.

‘It’s embarrassing really. The Budget was positioned with SMEs at its heart, but there was a real lack of commitment to increasing the flow of funds to small companies.’

Littner said it was crucial that the Government and banks moved swiftly ahead with plans for a referral system in which firms refused loans by high street banks were passed on to alternative lenders.
‘There has been almost zero movement,’ he said.

The British Business Bank said: ‘EFG is a demand-led programme. Since late 2014, SME lending has steadily improved and so the total value of EFG loans provided has decreased. The current value of loans provided under the programme shows there is still demand for EFG.’